Why a Tesla Was My Cheapest Option

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Warning

This is just a case study. We are not telling you to go out and buy a Tesla.

The Tesla Model 3 is the cheapest sedan on the market! I didn’t believe it either at first. I was in the market for a new car and assumed that a used car was probably the best value. A friend convinced me to look into the Model 3 and see if it was cheaper than other cars. What I discovered was that a brand new Tesla is 30% cheaper than a used Toyota Corolla and will save me over $23,000 over its lifetime.

Purchase Price

The first step is to determine the price of the car. A 3-year-old Toyota Corolla sells for $18,500. The base Tesla Model 3 is $40,240. By buying it from their existing inventory I got a discounted price of $36,620. Additionally, NJ offers a $4,000 incentive for electric vehicles under $45,000 MSRP, which brings the price at purchase down to $32,620. 

Sales tax needs to be added to the price of the car. NJ charges a 7% tax on cars which sets the price of the Toyota Corolla at $19,795. NJ waives taxes on electric vehicles so the Tesla remains at $32,620.

Tesla also offers a $500 discount as well as 3 months of free Full Self-Driving if you use a referral code. You need to purchase the car using the referral code, they will not add it after. If you do plan on purchasing a Tesla and need a referral code you can use mine yitzchak871574. This brings down the price of the Tesla to $32,120.

The destination, document, and other miscellaneous fees come out to $2,000 for both cars.

There is also a federal tax credit of up to $7,500. There are some restrictions and it doesn’t come directly from the price of the car at the time of the purchase. There is more information about this later on.

This chart summarizes the price of the car at the time of purchase:

Toyota CorollaTesla Model 3
Base Price$18,500$36.620
Sales Tax$1,295$0
Misc Fees$2,000$2,000
NJ EV Incentive$0($4,000)
Referral Discount$0($500)
Total$21,795$34,120

Financing

The second step is to determine what the monthly payment will be when financing the car. I was able to get a 4.75% rate by using a local credit union. The financing is calculated over 60 months.

This chart summarizes the financing costs:

Toyota CorollaTesla Model 3
Interest Rate4.75%4.75%
Monthly Payment$408$640
Total Paid$24,527$38,400

Insurance, Fuel, and Maintainance

Paying for the car isn’t the only cost of owning a car. There are monthly costs for insurance, fuel, and maintenance. 

I priced out insurance for each car by contacting my current insurance provider (GEICO) and getting a quote for each car. It came out to $67/mo for a Toyota Corolla and $100/mo for a Tesla Model 3

Determining the monthly cost of fuel requires having a monthly estimate of the number of miles driven and figuring out how much fuel is used per mile. I estimate that I use 1,000 miles per month. 

  • Gas in NJ costs $3.75 per gallon and a used sedan gets 20 mpg. This leads to a cost per mile of 18.75 cents. 
  • Electrical energy usage is measured in kWh (Kilowatt-hour). The Tesla can get 4 miles per kWh. My electric company charges 17 cents per kWh with a discount of 2 cents when charging during off-peak hours. My final cost per mile is 3.75 cents 
  • This gives a monthly fuel cost estimate of $188/mo for gas or $38/mo for electricity.

When it comes to maintenance both gas and electric cars require tire rotations and replacing the brake pads. For electric vehicles, this is mostly where the maintenance ends. Gas-powered cars also need oil changes at least twice a year and mechanical fixes for issues that start to occur 5 to 6 years into the life of the car. Electric vehicles tend to have fewer mechanical issues due to having significantly fewer parts.

This chart summarizes the estimated monthly costs for each category

Toyota CorollaTesla Model 3
Insurance$67$100
Fuel$188$38
Maintenance$60$30
Total$315/mo$168/mo

Home Charging Installation

One thing to discuss is that charging at home is pretty much a necessity. To charge at an acceptable speed you will need to get a 240V outlet installed. This can cost anywhere from $750 to $2,000 depending on the work that is needed. However, several rebates are offered making the installation of the charger free, or even profitable.

The charger itself can range from $500 to $1,000. NJ offers a rebate of $250 for the purchase of the charger. I purchased the ChargePoint HomeFlex from Amazon for $625. 

The federal government offers a tax rebate of 30% of the cost of a home charger and its installation, with the maximum rebate being $1,000. 

In NJ, the electric company offers a rebate of $1,500 for home charging infrastructure. There was no reason to pay less since it was fully covered by the electric company rebate. Thanks to the federal tax credit I benefit by paying more since I’ll receive an additional 30% rebate on what I paid.

This is a summary of the costs incurred for home charging installation:

  • Charger: $625
  • Installation: $1,500
  • Installation Rebate: ($1,500)
  • NJ Charger Rebate: ($250)
  • Federal Tax Credit: ($637)

The total cost after all rebates is ($262). At the end of the day, I made money by installing the home charger.

Federal Tax Credit

Tesla also qualifies for a Federal Tax Credit of up to $7,500. There are some caveats to this.

  • It’s a tax credit so you won’t get it back until you file your taxes.
  • The tax credit is limited to what you pay in federal taxes. So, you must pay at least $7,500 in federal taxes to receive the full credit.
  • The tax credit has a max income limit of $300,000 for married filing jointly, $225,000 for head of household, and $150,000 for all other filing statuses. If you make more than these amounts you will not be able to claim the tax credit. 

I qualify for the full tax credit and can deduct $7,500 from the total cost of owning the Tesla Model 3.

Total Cost of Ownership

This brings us to the actual cost of ownership. One thing to consider is that the Toyota Corolla is 3 years old while the Tesla Model 3 is brand new. This means that looking at the total cost of a car over its lifetime isn’t as useful as looking at the average annual cost of owning the car. To be conservative I assumed that both cars would last until they were 12 years old. 

These are the numbers together with the Average Annual Cost of Ownership

Used Toyota CorollaTesla Model 3
Years of Service912
Total Financing Paid$24,527$38,400
Federal Tax Credit$0($7,500)
Home Charger$0($262)
Fuel, Insurance, & Maintenance$34,020 $24,192 
Total Cost of Ownership$58,547$54,830
Average Annual Cost of Ownership$6,505$4,570

While the total cost of ownership is close for both cars, the Tesla is expected to last an extra 3 years because it’s a brand-new car. This creates an annual difference of $1,935. This means that over the life of the car, I will pay 30% less by owning a Tesla Model 3 with a total savings of $23,220 over 12 years.

Conclusions

On a purely dollar-to-dollar comparison, the Tesla Model 3 is certainly cheaper, especially in NJ. However, even without the NJ Incentives the Tesla still comes out cheaper. If you can handle the higher monthly payment while financing, Tesla is the frugal choice.

This doesn’t even take into account these additional benefits to the Tesla compared to the Corolla:

  • Larger seats
  • Heated seats
  • Over 70% more storage space
  • Better/longer warranties and roadside assistance
  • Free navigation system
  • Faux leather seats that are easier to clean

There are certainly some things to get used to when driving a Tesla such as the one-pedal driving and center console, but overall, due to the excellent incentives that are available now as well as the lower cost of upkeep, the Tesla is one of the best value cars you can own.

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